Shares of goeasy (TSX:GSY) have staged a spectacular rally in the fourth quarter so far after sliding 3.6% in the previous quarter. GSY stock has already risen about 44% in the ongoing quarter to currently trade at $153.43 per share, increasing its market cap to $2.5 billion. In comparison, the TSX Composite benchmark has seen 5.6% gains so far in the December quarter.
Before we explore whether goeasy stock could maintain this positive momentum in the coming quarters, let’s review some main fundamental factors that could be responsible for driving it higher of late.
Top factors responsible for goeasy stock’s recent rally
If you’re unfamiliar with its operations, goeasy is a Mississauga-based financial services company that primarily focuses on providing nonprime leasing and lending services to consumers. The company mainly offers loans and other financial products to people who might not have access to traditional banking services, including people with less-than-perfect credit scores or who need loans for smaller amounts that big banks might not offer. So, mainly goeasy makes money by charging interest on the loans with an aim to make borrowing money easier and more accessible for a wider range of people.
As we know, the Bank of Canada has rapidly raised interest rates since the start of 2022, making it difficult for consumers to borrow money. But goeasy’s ability to maintain strong loan originations and financial growth, despite difficult borrowing conditions could be the primary reason behind its strong share price rally in recent months.
Last month, goeasy announced its upbeat third-quarter results, which gave its investors another reason to cheer. During the quarter, the company’s loan originations stood strong at $722 million, reflecting a 13% YoY (year-over-year) increase with the help of a record volume of credit applications. As a result, its third-quarter revenue jumped 22.7% from a year ago to $321.7 million. The benefits of scale also helped goeasy post a 29.1% YoY jump in its adjusted quarterly earnings to $3.81 per share, beating analysts’ estimate of $3.48 per share. To add optimism, its adjusted net profit margin last quarter expanded to 20.3% from 18.5% a year ago.
Could GSY stock maintain its upward momentum?
It’s important to note that the Bank of Canada and the U.S. Federal Reserve have been holding interest rates steady for the last three consecutive meetings with inflation already showing early signs of cooling down. In fact, in its latest monetary policy event held on December 13, the Fed hinted toward the possibility of multiple interest rate cuts in the next year.
As the Bank of Canada is likely to adopt a similar monetary policy stance in the coming meetings, we can expect borrowing conditions and overall economic outlook to gradually improve. This could increase the demand for goeasy’s financial services, especially auto loans. Considering that, goeasy could continue to maintain strong financial growth trends in the next year, which can help its share prices inch up further, making GSY stock look attractive to buy now.
